Wednesday, November 20, 2013

Government fines against U.S. banks are a tax on the lenders’ excess profits, a former Bank of America executive said Wednesday.

“What does mean for the earnings power of these companies?” Sallie Krawcheck, who was head of wealth management for the Charlotte-based bank, said at a Bloomberg conference in Chicago. “Investors have to think pretty hard about what those returns are, what the return on equity is, for these financial institutions.”

Her comments followed an announcement Tuesday that JPMorgan Chase & Co. reached a $13 billion settlement with the U.S. Justice Department over the bank’s sale of mortgage bonds that officials said contributed to the financial crisis.

The fine is the latest effort by government officials to penalize banks as they probe lenders’ behavior leading up to the financial crisis. According to Bloomberg, the six biggest U.S. lenders, including Bank of America, have piled up more than $100 billion in legal costs since the crisis, including settlements and lawyers’ fees.

Krawcheck called the JPMorgan penalty, which officials said is the largest settlement with a single entity in U.S. history, not just a “fine for some alleged wrong doing in the past.” She said such fines also hamper banks' returns on investment by shareholders.

“It really does raise the question of what is the underlying earnings power of these banks going forward," she said.

Krawcheck was forced out of Bank of America in 2011 when her position was eliminated during a restructuring. She now owns 85 Broads, a Connecticut-based networking organization for women professionals.